01.12.12
Dilnot: Why we should all care
Source: Public Sector Executive Nov/Dec 2012
Les Mayhew, Professor of Statistics at Cass Business School (pictured), takes a critical look at the Dilnot report and suggests an alternative.
Long-term care in the UK is at a serious tipping point. Care costs are spiralling out of control as increasing numbers of people are living longer, but with a frail disposition, placing a heavier burden on the state purse. One of the biggest problems facing UK policymakers today is therefore to find a fair and cost-effective way to fund and reform the system.
The Coalition Government has tentatively backed a proposal from the Commission on Funding of Care and Support, chaired by economist Andrew Dilnot, to cap care costs (at possibly between £35,000 and £50,000) and increase the means-tested threshold to somewhere in the region of £100,000. This solution has been accepted by many stakeholders.
An inherently flawed system
There are, however, mixed views on whether the so-called Dilnot proposals will work. The reason for this is because the cap model is hugely problematic and possibly unworkable. If set too low, the cap would merely subsidise the rich. If set too high, large numbers of people with low levels of wealth, but high levels of housing equity, might still be forced to sell their homes.
A further problem is that subsequent governments may review the cap and insurers, who entered the long-term care market on the back of the reforms, might fi nd the goalposts are shifted a few years on. But what is arguably the biggest sticking point with the cap model is how one would measure and record an individual’s progress towards it. The guidance in the Dilnot report is unclear about this, probably because such a system would be wracked by details. For example, there would need to be definitions of what is meant by care and it would require computer systems to monitor people’s use of care, costing millions of taxpayer pounds and taking years to set up.
Other questions also arise: would a cap be applied retrospectively? Would the system be monitored centrally or locally? All of these important details are unclear.
A different approach
Instead, we believe the Government should consider an alternative system: one where costs are shared between the state and the individual by placing people into bands according to their cumulative wealth (i.e. taking into account both the amount of income being received and the value of assets held).
Under such a system, the Government would subsidise a proportion of care costs depending on the band the individual falls into, creating an index which measures notionally for how many years of care an individual could afford to pay.
For instance, if you are in band A, the state might pay 90% of your care costs; in band B, the state might contribute 70%, and so on.
This state subsidy would decrease as personal wealth increases. But as a person in care decumulates their assets the state would step in and pay more.
The private sector would have a clear set of ground rules in which to develop products for this market ranging from long term care insurance, equity release and specially designed annuities.
To prevent people from shedding their wealth to fall into a lower band, the same rules governing inheritance tax would apply: people would have to prove they haven’t unloaded huge amounts of money in previous years to scam the system.
Under this model, as now, there would inevitably be people for whom the Government would pay the majority, if not all, of their care costs. One way to help these people make a contribution to their care, without needing to buy expensive insurance, would be by introducing Long-Term Care Bonds.
A cross between premium bonds and lottery tickets, both of which are popular, they could be bought inexpensively, a pound each for instance, and by buying them, the individual would be entered into a draw every month with the chance to win prizes.
The money put into the bonds would be ringfenced to pay towards the individual’s longterm care. If the individual dies before the money is used up, it would go back into his or her estate.
Dilnot has its merits, but it is diffi cult to implement and will not be workable for decades to come.
A system of banding coupled with Long Term Care Bonds is a better, simpler, fairer and more cost-effective way to strike a balance between what individuals pay and what the state provides.
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